Delta weaker; Federal-Mogul higher; Calpine surges; Doral 'whipped'

By Stephanie N. Rotondo

Portland, Ore., Feb. 9 - Rising oil prices and related geopolitical concerns prompted a decline in Delta Air Lines Inc. debt during trading on Friday.

At one point in the trading day, oil prices jumped over the psychological barrier of $60, climbing to $60.80. Prices have been threatening to cross the line all week. By the end of the day, however, oil slipped to just under the $60 mark.

Elsewhere, Federal-Mogul Corp. is continuing its drive upward on what traders are calling the "Icahn news." An option under the company's recently approved disclosure statement could give the investor a controlling stake in the company.

Traders are attributing a recent surge in Calpine Corp.'s debt to the announcement made earlier this week that the company is selling one of its assets. The sale is part of the company's plan to cut non-core businesses and focus on key markets.

Puerto Rico-based Doral Financial Corp. saw its floating-rate notes get "whipped around," according to one market participant, as investors wonder whether the debt will be refinanced. Talks with the bondholders have been ongoing, but there is still no word on the progress of those discussions.

In other refinancing news, Movie Gallery Inc.'s bonds are still reacting to the news out earlier this week. The company announced Wednesday that it had signed an underwriting agreement with Goldman Sachs Credit Partners LP to refinance its existing senior secured credit facility. Though trading lower than the initial spikes, the notes traded up from Thursday's close.

Prospect News received an expected "no comment" from Level 3 Communications Inc. on the validity of a takeover rumor. The company released the pricing for its proposed private offering of senior notes. The international communications company will sell $1 billion principal amount of senior notes - $300 million of floating-rate senior notes due 2015 and $700 million of 8¾% senior notes due 2017 - to qualified institutional buyers. The floaters have an interest rate equal to the six-month Libor plus 375 basis points.

During the afternoon, traders pegged the 8¾% notes at 100.25 bid, 100.75 offered and the floaters at 100.125 bid, 100.625 offered.

Delta weaker

Delta saw its bonds weaken as oil concerns continue to plague the market.

The Atlanta-based airline's 8.30% notes due 2029 were priced at 61.25 bid, 62 offered by one distressed trader, while another tightened the spread at 61.75 bid, 62 offered.

"They were lower on the day with lots of volume," the latter said.

Oil prices were briefly seen above $60 a barrel Friday, the first time since the first trading day of the year. Colder weather throughout the country, as well as tension between the United States and Iran, helped boost the commodity. At market close, light, sweet crude oil settled in at $59.89 a barrel.

In other bankrupt airline paper, one trader remarked that Northwest Airlines Corp.'s bonds are making a comeback, as they re-enter trading in the mid-90s.

The company's stocks took a huge downturn, losing 33 cents, or 11.62%, to $2.51. The stocks are continuing to lose value as the company aims to exit Chapter 11 protection. The company has stated that, once it emerges from bankruptcy, current stockholders are unlikely to receive any recovery.

But another in distressed trading is seeing little recovery in Northwest's notes, though other airlines are starting to perform better.

"Northwest just keeps going down a point," he said. "They haven't recovered at all."

Over the week, Northwest has seen little price movement in its debt, and weak trading. The bonds remained unchanged as of Friday.

Federal-Mogul gains

Auto parts maker Federal-Mogul's debt jumped another couple of points, according to one trader who remarked, "The Icahn news is good for Federal-Mogul."

At the close of trading, the trader slotted the notes at 85.5 bid, 86.5 offered, a 2-point increase from the previous day.

The company received approval on its fourth amended disclosure statement on Feb. 2. Under the plan, domestic asbestos creditors could receive a 50.1% stake in the company once it emerges from Chapter 11 protection. Ultimately, however, investor Carl Icahn could become controlling stakeholder in the company.

Icahn already owns a significant portion of the Southfield, Mich.-based company's unsecured debt. According to the company's reorganization plan, Icahn also has an option to buy up to 86.12% of the asbestos creditors' stake through a stock purchase.

A confirmation hearing will be held on May 8.

Calpine up

San Jose, Calif.-based Calpine gained almost 3 points on Friday, continuing a surge attributed to the sale of its 250-megawatt Goldendale Energy Center to Puget Sound Energy for $120 million.

The 8½% senior unsecured notes due 2011 closed the day at 97.5 bid, 98.5 offered.

The struggling power company said the sale will further the company's restructuring program.

Calpine filed for bankruptcy in December 2005.

Doral slides

Doral's senior notes slid a bit bid-wise at the end of the week, according to one trader. He said the notes drew a 30.5 bid the previous day but came in Friday at 30 bid, 31 offered. The trader placed the floating-rate notes, which mature in July 2007, at 96 bid, 97 offered. Another trader said he moved the 4¾% preferred notes at 129, down a point from the last sale.

"All of these bonds are trading way off," one trader said.

The trader said he was unsure what was "interesting" about the company's debt.

"They are difficult to follow because the bonds don't trade that well," he said. "All bonds are trading back to 50% of face."

The floaters, however, "are whipping around on whether this is getting refinanced," the trader said.

The floaters have been a source of contention for the company and holders of the notes. Refinancing talks have been in the works for months, but there has been no indication how things are panning out. Traders have speculated that if a deal is not worked out, the bondholders will force the company into bankruptcy.

Movie Gallery climbs

Dothan, Ala.-based Movie Gallery traded well throughout the day, one market insider said. The 11% notes due 2012 came in at 83.5 bid, 84 offered, tightening the spread from the previous day at 83 bid, 84 offered. The insider noted that he saw some notes trading "up through the offer that I saw."

News that the movie rental chain would refinance its debt sparked a flurry of "I told you so" from traders. The bonds gained some momentum, trading as high as 86 bid, 87 offered during the week.

"Financing buys them some time so people can collect the coupon, maybe," the insider speculated.

He added that the debt had a good interest rate and is considered a lower risk than a week ago.

Adelphia lower over week

A trader said he had heard debt in Adelphia Communications Corp. "caught a bit of a bid" as a request by a group of bondholders who want to appeal approval of the company's Chapter 11 reorganization plan without posting a bond was rejected.

The trader said it was widely believed that the required bond, ordered by a judge last month to offset potential damage to the value of the bankruptcy estate, was a non-issue.

"We thought the $1.3 billion bond was out the window," he said.

"I don't know why they would go up," he added. "That doesn't make sense to me."

Upon further investigation, the trader said he did not see any trades on the day and that the notes had actually traded down over the week. He said the company's 11% notes started the week at 107.5 bid, 108 offered, and are now trading at 105.5 bid, 106 offered.

Remy down on greater revolver draw

On the downside, a trader saw Remy International Inc.'s bonds as "definitely one" that fell, citing the news that the Anderson, Ind.-based automotive electrical systems manufacturer - the former Delco Remy - had drawn down its revolving credit facility more than originally expected, sending its bonds down "6 or 7 points" on the day.

He saw Remy's 9 3/8% notes due 2012 at 30 bid, 32 offered, and pegged its 8 5/8% notes due 2007 at 82 bid, 84 offered, calling them down about 6 or 7 points.

However, a trader at another desk while seeing Remy "down pretty good for a while, said that the bonds ended down 3 points at the most, across the board.

He saw the 8 5/8s down a trey at 83 bid, 85 offered, the 9 3/8s likewise 3 points down at 30 bid, 32 offered, and said that the company's 11% notes due 2009 similarly lost 3 points, finishing at 33 bid, 35 offered.

Remy announced Friday that it had completed the previously announced sale of its light and medium truck diesel engine and component remanufacturing business conducted by Franklin Power Products, Inc. and International Fuel Systems, Inc. to Caterpillar Inc, for total cash proceeds of $153.2 million, including $3.2 million of an estimated post-closing purchase price adjustment.

Of the proceeds from the transaction, Remy deposited the first $50 million into a restricted account, pledged as collateral to the company's lenders under its senior credit facility, and available for withdrawal only with the required consent of senior lenders. Remy kept $7.8 million of the proceeds to pay expenses related to the transaction and make a required distribution of available cash to a joint venture partner of the business it sold. It used the remaining $95.4 million to repay outstanding revolver borrowings under the senior credit facility.

"What it really came down to," the first trader said, "was they actually drew down a bigger number of their revolver. They originally were going to use less [of the deal proceeds] to pay down the debt. And now, they're going to use a bigger chunk of their asset sale to pay down the debt."

Spectrum spanked after Q1 loss

Spectrum Brands' bonds were seen mixed, after having fallen on Thursday in tandem with a two-day big slide in the Atlanta-based consumer products company's stock, after it reported a fiscal first-quarter loss on falling revenues.

The company's 7 3/8% notes due 2015 were seen having actually firmed to 85.875 bid from Thursday's finish at 85 - which represented a drop of 2 points from its pre-earnings levels. Activity both days was described as very busy.

Its 8½% notes due 2013 retreated to 90.75, a market source said, from, Thursday's close at 92 - and well below pre-earnings trading levels in a 94-96 context.

At another desk, a market source called those bonds 91.5 - but indicated they were still down some 2½ points on the day.

Spectrum's New York Stock Exchange-traded shares, meanwhile, dropped precipitously on Thursday on the news of the poor earnings, and continued to head south on Friday, closing down $1.22 (12.34%), at $8.67. Volume of 4.1 million shares was four times the norm.

The maker of Rayovac batteries and Remington shaving products on Thursday reported that in its fiscal first quarter, it suffered a loss of $18.8 million (38 cents per share) - a sharp deterioration from the year-earlier period, when the company recorded a profit of $2.3 million (5 cents per share). Revenue fell to $564.6 million from $566.3 million a year earlier.

The results were well below analysts' consensus expectations of a profit of 8 cents per share on revenue of $640.3 million. Spectrum also announced that it plans to sell its home and garden business, and said it is also considering sales of other assets.

Analysts responded negatively to the earnings data, with Prudential Securities downgrading the company's shares, and Standard & Poor's on Friday cutting its corporate credit rating on Spectrum to CCC+ from B- previously, with a "developing" outlook.

S&P analyst Patrick Jeffrey additionally noted that Spectrum is facing intense competition in its battery business and increased commodity costs.

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